Your shuttered Sears store could soon be demolished. Here's why

  • At the largest retail real estate conference on the East Coast, put on by ICSC, landlords spoke to CNBC about demolishing a Sears store being a cheaper and faster option than back-filling the existing structure.
  • Sears' future while it's in bankruptcy court proceedings is still uncertain, with a total liquidation being one possible outcome. That would mean more than 500 additional Sears and Kmart stores going dark.

If a Sears store near you has already closed or is in the process of closing, it's likely the owner of that property will opt to demolish it rather than find someone to fill the space.

The bankrupt department store chain has already said it will shut 142 stores by year's end. And its future while it's in bankruptcy court proceedings is still uncertain, with a total liquidation being one potential outcome. That would mean more than 500 additional Sears and Kmart stores going dark.

As mall owners look to find new tenants to replace Sears, the process likely won't be so easy. Sears stores are typically more than 100,000 square feet and can occupy multiple levels. There are few department store chains — or any retailers — still growing today that would fit directly into that space. Some, if not lots, of construction is going to be required.

To be sure, a handful of companies have already expressed interest in taking over Sears' real estate that's currently being bid on, and moving right in. The short list includes furniture retailer At Home, self-storage company U-Haul and off-price chain Burlington.

"We are looking at both Sears and Kmart stores that have a large enough floor plan to accommodate our square footage," a spokeswoman for At Home told CNBC. "We have actually been scouting those for about four years as they become available on the market."

Court documents filed in Sears' bankruptcy case show U-Haul hopes to take 13 locations from Sears for $62 million, including 12 Kmart stores. Real estate analysts tell CNBC there's still a huge demand in the U.S. for self-storage facilities, and more of these types of companies are likely to be interested in Sears' real estate.

Burlington CEO Tom Kingsbury, meanwhile, told investors last month "Kmart is more of an opportunity" for the company "because they're in very good locations." But, he added, "we have taken advantage of some of the Sears closures, where we'll take a piece of the building and somebody else would take another piece of the building, and they'll divide it up."

'Most of them are going to be torn down'

At the largest retail real estate conference on the East Coast, put on by ICSC, a handful of landlords spoke to CNBC last week about demolishing a Sears store being a cheaper and faster option than filling the existing structure. Some mall owners have been finding success in dividing a vacant Sears store for numerous tenants. PREIT, for example, took an old Sears store at Viewmont Mall in Scranton, Pennsylvania, to bring in Dick's Sporting Goods, Field & Stream and HomeGoods.

By and large, demolition can prove to be the better option.

"I would tell you in so many instances, I've seen developers [doing remodels] tell me, 'Gosh I should have just torn down the building. You don't know what will be behind this wall or that," said Nick Hernandez, head of retail services for commercial real estate company Transwestern. "Most of those [Sears] boxes are going to be harder to reuse as they are. I bet you most of them are going to be torn down."

One of the best examples of this trend so far is Esplanade at Aventura in Aventura, Florida, where Seritage has demolished a shuttered Sears to start construction of a new open-air center that will include fine dining and high-end retail. It's set to open next year.

"Seritage is leading the way in showing what can be done with these Sears locations," said Greg Maloney, president and CEO of JLL's Americas retail division. "It takes time, but they are doing it."

Maloney said it could cost a landlord roughly $100 per square foot to retrofit an old Sears store, or break it up into three or four spaces to be used for new retail (with restaurants and other types of uses costing more or less, depending). Demolition could cost closer to $30 per square foot, and building a new shell (or set of stores) on top of the dirt could cost about the same, he said. In this case, demolition and building a new structure would be less expensive.

Overall, "it all depends on location, and who's going to be doing it," Maloney said. "All of those things you have to take into consideration."

Many mall owners are now considering themselves mixed-use developers, meaning they are looking to add apartment complexes, hotels and office spaces adjacent to retail and restaurants at their properties. This was another theme at the ICSC conference, as landlords spoke about how they envisioned co-working and medical facilities moving into malls, replacing department stores, of which the U.S. arguably still has way too many.

"For a landlord to create from and adapt [an old Sears store], it definitely is much more cost prohibitive" to use the existing space," said Anjee Solanki, director of retail services at Colliers International. "You have columns ... and ceiling heights that are no longer relevant."

It would be "far cheaper" to tear it down, she said.